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Insurance & Social Security > 04. Life Insurance > Flashcards

04. Life Insurance Flashcards

1
Q
  1. What is the two broad types of insurance policies?
A
  • Indemnity policies

* Defined benefit policies

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2
Q
  1. What is an indemnity policy? Provide examples
A

It is a policy where losses are quantified at the time of claim and reimbursed. Eg home/contents insurance, motor vehicle insurance and health benefit insurance are examples.

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3
Q
  1. What is a defined benefit policy? Provide examples.
A

Where a benefit is defined at the time of applying for insurance and paid upon satisfaction that a given insured event has occurred. Life insurance policy.

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4
Q
  1. What is the general break down of each premium dollar paid to an insurer?
A
  • 80% will cover the cost of claims
  • 15% will account for administration and management
  • 5% will be provided as profit to shareholders.
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5
Q
  1. Who are the parties involved in sharing risk?
A
  • the insured person - choice of insurance, payment of premiums
  • the claimant - a person who has paid premiums and is expecting a benefit
  • the underwriter - lawfully responsible for the contracts offered
  • the client and self insurance - who advised the client of the level and type of insurance required.
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6
Q
  1. What are the five key areas of a persons financial plan?
A
  • Security of investments
  • Volatility of returns
  • Current / future taxation treatments
  • Inflation and
  • Liquidity
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7
Q
  1. Why is risk management an important addition to the plan?
A

Because the plan is dependent upon the clients ability to earn income to invest and to provide cash to accommodate unforeseen events. The threat to this include disability, premature death, TPD and medical trauma.

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8
Q
  1. What are the minimum levels of insurance generally required?
A
  • Emergency savings
  • Health insurance
  • Life insurance
  • Income protection
  • Business insurances
  • Property insurance
  • Liability insurance
  • Wills and estate planning.
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9
Q
  1. The base component of a life policy is death cover. What options are there to purchasing this?
A
  • Permanent (whole of life or endowment)
  • Temporary insurance (term insurance) or
  • A combination of the two.
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10
Q
  1. What is permanent life insurance?
A

Insurance that has both investment and insurance components that are combined. Earnings declared as bonuses increase the surrender value and the benefits payable for insured events. Permanent refers to the intention of the policy to remain in force for the term of the insured’s natural life.

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11
Q
  1. Permanent policies can insure against what?
A
  • death; or

* death and TPD (permanent or as a rider)

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12
Q
  1. Describe the two forms permanent insurance may come in?
A
  • Whole of life insurance that is characterised by having a maturity date greater than age 65 and commonly 99 years or
  • Endowment insurance that is characterised by fixed-term maturity dates
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13
Q
  1. Can cash entitlements be gained from from a permanent insurance policy?
A

Yes they can be accessed by borrowing from the policy, In such cases the insurer releases cash noting a loan against the policy that is deducted from any future entitlements

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14
Q
  1. What does it mean when a policy is ‘paid-up’?
A

That contributions have ceased and in which case the policy is made ‘paid up’ which reduces the value of the insured benefits to preserve the future cash value of the policy.

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15
Q
  1. What will occur where a client ceases to pay premiums without notice to a permanent insurance policy?
A

It will become ‘paid-up’ status and accrue a loan against the policy that is deducted from future entitlements.

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16
Q
  1. What are terminal cash bonuses and policy bonuses?
A
  • Terminal cash bonuses may apply if the correct withdrawal procedures are followed and the appropriate notice given (usually 5 yrs)
  • Policy bonuses are often applied to the policy each year and these increase the level of benefit on death.
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17
Q
  1. What are some of the issues to consider with a permanent life policy?
A
  • borrowing - what rate is offered
  • borrow from another lender and use the policy as security
  • making the policy paid-up to ensure a higher future surrender value - insured benefits however may be reduced
  • total surrender of the policy - insurance ceases
  • sale of policy through secondary market - higher 6-12% than offered by insurer.
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18
Q
  1. What is term insurance?
A

It is a product regulated under the Life insurance Act 1995. Once issued it cannot be altered or cancelled prior to the policy end date as long as premiums are paid to keep the policy in force.

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19
Q
  1. What are the additional rider benefits offered for term insurance?
A
  • Total and permanent disability
  • Trauma insurance
    These types of benefits will reduce (if paid) the amount of the scheduled some uninsured payable on death.
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20
Q
  1. What is terminal illness?
A

It is generally a built-in standard product feature that proves an advance payment of the death benefit when the insured is diagnosed with a life-threatening condition and is expected to die within 12 months.

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21
Q
  1. What isTPD?
A

Total and permanent disability which is an added cost option designed to provide much-needed cash when the insured is permanently unable to work or has lost the use of a significant part of their function.

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22
Q
  1. The definitions of TPD are varied to cater for most people who are not in gainful employment including those who are what?
A
  • Not gainfully employed
  • are on home duty occupations
  • Have loss of use
  • Experience loss of activity of daily living, or
  • have significant cognitive impairment
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23
Q
  1. What is trauma insurance?
A

This covers many forms of life-threatening illnesses and events that result in severe medical trauma and are always defined in the policy document. It is an additional cost to term insurance.

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24
Q
  1. Major trauma conditions equate to the majority of claims averaging about 85% of cases and are accounted for by what conditions?
A
  • Cardiovascular - heart attack, coronary artery bypass surgery and heart surgery
  • Cancer
  • Strokes
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25
Q
  1. There are seven major trauma conditions and a further 35 conditions that account for relatively rate to extremely rare conditions that affect many Australians on a regular basis. Name 5 of these ancillary trauma conditions?
A
  • Blindness
  • Coma
  • Dementia
  • Kidney failure
  • Liver failure
  • MS
  • Motor Neurone disease
  • Paralysis
  • Severe burns
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26
Q
  1. Rider benefits offer options that can enhance the value of the insurance protection, name five?
A
  • Accidental death benefits
  • Accidental injury benefits
  • Children’s trauma cover
  • Children’s future insurability options
  • Business loan cover
  • Future insurability options
  • Buy-back and cover reinstatement options
  • long-term care and
  • unemployment premium and waiver benefits
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27
Q
  1. Complementary added cost options can be added to the life benefit to protect against the financial consequences of total and permanent disability (TPD) and/or medical trauma, how are these options available?
A
  • bundled or linked rider benefits - added tho the life benefit (reduce life benefit in event of claim)
  • individual stand-alone benefits - in addition to the life benefit
  • hybrid benefit combinations - comprise both rider and stand-alone benefits under one policy.
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28
Q
  1. What conditions do bundled or linked rider benefits have?
A
  • The insurer’s liability is limited to the amount of life cover ont he policy
  • The TPD and trauma benefits must not exceed the value of the life cover
  • The benefits paid for one ensured event reduce the liability of the insurer to pay benefits for any remaining insured events.
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29
Q
  1. Why may hybrid benefit structures be used?
A
  • To satisfy specific client risk concerns
  • To satisfy a specific risk management strategy; or
  • To save cost on a full stand-alone solutions
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30
Q
  1. When are stand-alone benefits required?
A

Where there is a difference between the amounts of insurance needed to satisfy the financial consequence of premature death, TPD or trauma.

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31
Q
  1. What are the main definitions used for TPD insurance?
A

Defined loss:
* Loss of hands, feet or sight
* Cognitive function (intellectual capability)
* Ability to do activities of daily living (dressing and eating)
* Whole person function (use of arms/legs)
Occupational:
* own/any occupation
* home duties

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32
Q
  1. How can TPD cover be provided?
A

As a rider benefit to life insurance or as a stand-alone benefit (but this can be much more expensive)

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33
Q
  1. Who needs TPD cover?
A
  • Breadwinner
  • Homemaker
  • Business owners
  • People with mortgages
  • People reaching the end of their working life (to cover dementia etc)
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34
Q
  1. What does the loss of use TPD definition cover?
A

Loss of use of:

  • two limbs (whole hand or whole foot)
  • the sight in both eyes; or
  • one limb and sight in one eye.
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35
Q
  1. What does the loss of independent existence TPD definition cover?
A

Means unable to perform two of the following without assistance:

  • bathing and/or showering
  • dressing and undressing
  • eating and drinking
  • using a toilet to maintain personal hygiene
  • getting in and out of a bed, chair etc.
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36
Q

36.What does significant cognitive impairment TPD definition cover?

A

Medical or other evidence of deterioration or loss of intellectual capacity that requires the person to be under continuous care and supervision.

37
Q
  1. What is the loss of whole person function TPD definition cover?
A

Means permanent impairment of at least 25% of the whole person as defined.

38
Q
  1. What is ‘any occupation’ TPD definition?
A

Unlikely ever to follow any occupation which they are reasonably qualified by education, training or experience.

39
Q
  1. Who would not benefit from an ‘own occupation’ definition and why?
A

Occupations that have not involved any postgraduate study or further professional development in the direction of a defined speciality. Eg. GPs, Architects, Librarians, Chemists and Programmers

40
Q
  1. What is ‘own occupation’ TPD definition?
A

Where the insured is unlikely ever to follow the person’s occupation and suits people with specialised skills beyond general practice.

41
Q
  1. What are the four options for ‘own occupation’ definition?
A
  • The occupation itself
  • The occupation disclosed on the application
  • The occupation performed immediately prior to disability (this is the most common)
  • Any other full time occupation performed within 5 years of the disability.
42
Q
  1. Why do underwriters use survival conditions and what are common options for occupational and non-occupational TPD cases?
A

These ensure that there is some degree of financial consequence to justify the payment of the benefit. Occupational TPD conditions generally have a 3-6mth waiting period and non-occupational have no qualifying period, an 8 day survival (without life support) a 14 day survival or one month survival period.

43
Q
  1. What are the benefits of holding TPD within superannuation?
A
  • Tax effective for paying premiums (conts are taxed concessionally)
  • Benefit can be paid in diff ways (pension, lump sum, annuity, combo)
  • Group insurance policy can void the requirement for individual insurance underwriting
44
Q
  1. What are the disadvantages of holding TPD within superannuation?
A
  • some benefits such as own occupation and some definitions of cognitive impairment or whole of person function are outside of the SIS release conditions
  • Benefit is payable to the Trustee and subject to SIS release
  • Benefit payments up to 20% tax
45
Q
  1. What is trauma insurance?
A

It is a life-threatening medical condition or event that seriously compromises current and future quality of life, resulting in advisers financial consequence.

46
Q
  1. What characteristics are found in a trauma cover policy:
A
  • Unambiguous wordings and definitions
  • Appropriate trigger events
  • Benefits and wordings that are medically accurate
  • Careful grammar
47
Q
  1. What can the benefits from trauma policy be used to assist with?
A
  • REpayment or extinguishment of debt
  • Out of pocket medical expenses
  • Rehabilitations expenses
  • Costs for ongoing nursing care
  • Capital to satisfy income requirements
  • Financial planning shortfalls for both pre- and post-retirement goals
48
Q
  1. Where might you recommend trauma insurance?
A
  • Where there is debt
  • Young people who may have lower health cover
  • Parents with children in education
49
Q
  1. What does trauma insurance cover?
A
  • major trauma conditions
  • ancillary trauma conditions
  • lesser life-threatening trauma conditions
50
Q
  1. What are the ways that ancillary trauma conditions are classified?
A
  • Conditions caused by injury - severe burns, paralysis, coma
  • Acute conditions - bacterial meningitis, intensive care
  • Progressive conditions - dementia, Parkinson’s, kidney/liver failure
  • Other conditions - cardiomyopathy
51
Q
  1. What are partial trauma benefits?
A

They are benefits covering conditions or events that are less critical or life threatening and are often:

  • added cost options
  • paid as a partial advance payment or defined benefit
  • cover conditions such as minimally invasive surgical procedures, pre-malignant cancers etc.
52
Q
  1. Why have insurance companies introduced ‘severity and claim limitations’?
A
  • to manage product sustainability issues
  • to reduce costs
  • to transfer some of the risks back to the insured
  • to remove some conditions
53
Q
  1. What is an example of a claim limitation?
A

To have survived the condition, been absent from employment and to have been unable to engage in any occupation for 28 days.

54
Q
  1. Has can severity be assessed?
A
  • At least 25% impairment of whole person function
  • Permanent inability to perform two activities of daily living
  • Permanent inability to perform more than 50% of insured’s usual activities.
55
Q
  1. What is staged trauma insurance and why is it a useful alternative to traditional trauma insurance?
A

It covers more conditions, allows for multiple claims and costs less than traditional trauma cover because it pays based on the severity of the condition. TPD and trauma are combined.

56
Q
  1. What are the options for adding trauma insurance for an insured?
A
  • As a rider to the the death benefit
  • Stand-alone
  • Hybrid
57
Q
  1. How may advances in medical technology impact on trauma offerings?
A

Cures and treatments may become available which means that conditions may not be life threatening anymore. Insurers therefore should include the right to vary trauma events in certain circumstances.

58
Q
  1. How would having the right to vary trauma conditions benefit the insured?
A

Policy holders could be denied legitimate claims simply because the trauma definition refers to medical diagnostics that are no longer available (superseded)

59
Q
  1. What is required by the underwriter in order to pay a trauma benefit?
A
  • condition certified by a medical practitioner; or
  • by a medical practitioner who is approved by the underwriter, and
  • agreed to by the underwriter’s chief medical officer.
60
Q
  1. What information is relevant when underwriting trauma insurance?
A
  • Family history
  • Hereditary conditions
  • Occupation and pastimes
  • Other relevant risk factors such as diabetes, weight, smoking.
61
Q
  1. What are the two key purposes of income for those in gainful work?
A
  • to spend on their current lifestyle

* to save for their future lifestyle

62
Q
  1. What is the maximum amount paid for income protection insurance?
A
  • 75% of the first $20K of monthly income, and

* 50% of gross monthly income that exceeds $20K per month.

63
Q
  1. What can be included in the income calculation?
A
  • wages and salary
  • some regular commissions (though most are excluded)
  • regular bonus and share schemes (again most are not covered)
  • employer super
  • fringe benefits
  • regular overtime
64
Q
  1. What are the selections that must be made when taking out income protection?
A
  • The monthly benefit required
  • whether losses are indemnified at the time of the claim or if there is an agreed value benefit
  • the time that the benefit commences (wait period)
  • the time the benefit ceases (duration).
65
Q
  1. Why is there a wait period for income protection?
A

It works like an excess, and has two main functions:

  • it is the period that the insured must be ‘disabled’ for in order to qualify
  • it is the period during which the insured is bearing the risk no ‘disability’ benefit is made
66
Q
  1. What are the general waiting period options for income protection?
A
  • 14 days
  • 30 days
  • 60 days
  • 90 days
  • 180 days
  • 360 days
  • 720 days (2 years)
67
Q
  1. What three things will dictate which waiting period should be recommended?
A
  • Asset base - how long with the insured be able to survive without income (determined by level of savings and liquidity of investments)
  • Income continuation - how much sick leave, long service leave, workers comp they have
  • Affordability - while a shorter period is better, cost may be too high.
68
Q
  1. What is the benefit period and what are the two key types?
A

It starts at the end of the waiting period and is the maximum period of time the benefit amount will be paid under a particular claim. There are traditionally two types -

  • Coterminous - payment period is same regardless of cause
  • Non-coterminous - injury and sickness length differs
69
Q
  1. Coterminous benefits are more common now and offer what length of benefit period?
A
  • 1, 2 & 5 years
  • to age 55, 60 or 65
  • lifetime
70
Q
  1. What is a recurring condition and how is it applied?
A

It is where an insured returns to work but the claim reoccurs and where from the same cause and within a specified period (6mth or year) the waiting period is waived and the claim is deemed part of the original claim (and benefit period).

71
Q
  1. What are the two options of benefit guarantees?
A
  • guaranteed ‘agreed value’ where benefit payment amount is as specified
  • non-guaranteed ‘indemnity’ benefit - amount is max of 75% of insured income immediately prior to disability.
72
Q
  1. When is an agreed value benefit appropriate?
A
  • where income fluctuates or someone working in a self-employed situation
73
Q
  1. When are indemnity policies appropriate?
A

Where the person:

  • has secure employment with steady income
  • maintains a low ration of living expenses to earnings
  • cannot afford agreed value benefits
74
Q
  1. To be deemed totally disabled the life insured generally must meet what conditions?
A
  • Be under the care of a medical practitioner
  • not be working
  • unable to perform some aspect of their occupation
75
Q
  1. What is the purpose of the insurer including under the care of a medical practitioner to the total disability definition?
A
  • to ensure they are receiving appropriate medical attention so recovery can be maximised
  • that there is some medical overview of the claimant
76
Q
  1. How is the ‘unable to perform some aspect of their occupation’ determined in a policy for total disability?
A
  • Ability to perform certain duties
  • Ability to work a certain number of hours, or
  • Ability to earn a certain percentage of pre-disability income
77
Q
  1. How are pre-disability earnings generally determined for partial disability?
A

Highest 12 months earnings in either the 12 months immediately prior or 3 years prior. Some allow highest earnings since commencement of policy

78
Q
  1. What policy limitations may be found in an income benefit?
A
  • Pre-existing conditions
  • Changes to the employment status of the insured at time of claim
  • The geographic location of the insured at the time of the disability
  • Exclusion of claims resulting from self-harm, war and criminal activity
  • Complications of pregnancy and childbirth
  • Specific conditions such as mental illness.
79
Q
  1. What are the indexation benefits and upgrading policy terms that may be available in income protection?
A
  • Automatic indexation - eg 3% or CPI on the monthly benefit whichever is greater annually
  • Claim indexation benefit - the benefit increases by CPI on a quarterly or annual benefit while on claim up to a maximum
  • Upgrade guarantee - defines conditions where the underwriter may pass policy improvements to existing share holders
80
Q
  1. What are the two benefits of upgrade guarantees?
A
  • For the insurer - allows them to update policies so less to administer
  • For the insured - it updates their conditions.
81
Q
  1. What are day one and lump sum benefits and some examples?
A

They are specified event benefits that are paid straight away (or after a shorter wait period) with a completed claim form and medical evidence. These include:

  • bed confinement benefit
  • scheduled injury benefit
  • medica trauma benefits
  • death benefits
82
Q
  1. What are rehabilitation recovery benefits?
A

Benefits provided to promote recovery and help facilitate a return to full productivity. These include the following benefits:

  • rehabilitation expense benefits - costs associated with rehabilitation, travel & equip
  • rehabilitation program benefits - incentive to participate in a recognised rehabilitation program
  • return to work bonuses
83
Q
  1. What are the benefits of family and carer benefits as part of your income protection insurance?
A
  • Cover loss of earnings suffered by family members who cease work to look after insured
  • Cost of nursing care
  • Cost of domestic help
  • Cost of additional childcare
  • Cost of accommodation for next of kin where 100Km from hospital
  • insured’s spouse in the event they are disabled while engaged in home duties.
84
Q
  1. How can family member and carer benefits be purchased?
A
  • individual extra cost options
  • groups of benefits that are marketed as a family package, or
  • components of a comprehensive protection product
85
Q
  1. What other additional monthly benefit options are available to insureds
A
  • superannuation maintenance benefits
  • debt replacement benefit
  • sever disability benefits
  • relocation benefits
86
Q
  1. There are occasions when the underwriter may waive the premium due on the policy, what are these?
A
  • Disability waiver of premium - while on claim
  • Unemployment premium waivers - up to three months for involutary unemployment
  • Associated policy premium waivers - other premiums (death, trauma, TPD) are waived while on claim
  • Maternity leave premium waiver
87
Q
  1. What are the policy owner-intiatied premium suspension or free situations?
A
  • Premium suspension holiday - up to 12 months but no claims can be made - risk is on insured
  • Premium freeze options - this freezes the level of premium so it does not increase with age - instead the benefit decreases.
88
Q
  1. What is guaranteed future insurability?
A

It is an added cost option which allows the benefit to increase without further underwriting. It usually involves a ceiling value and expires at age 55.

Insurance & Social Security (10 decks)

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